Retirement Plans Survive Tax Reform

After two fairly intense weeks of speculation, rumor and worry over whether tax reform would impact 401(k) plans, we finally have our answer – Nothing is changing.

There has been an internal debate going on in our office about whether we should have put out an article responding to the President’s tweet last Monday:

“There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!” – President Trump, 10/23/17

I started a draft, complete with the standard defense of the private retirement system that you would expect from someone who works in this industry. Ultimately I abandoned the article when I realized that we had just has much a chance of being right in our predictions as we did of being wrong.

It’s a good thing we stayed quiet because the only outcome we didn’t see is the one that unfolded this morning. The newly released GOP tax reform bill leaves 401(k) plans and their limits completely untouched.

“The Tax Cuts and Jobs Act makes no changes to the popular retirement savings options that Americans have today – including 401(k)s and Individual Retirement Accounts, or IRAs. Americans will be able to continuing making both traditional, pre-tax contributions and “Roth” contributions in the way that works best for them.” – House Ways & Means Announcement, 11/2/17

For transparency, our prediction was that the overall limit would remain at $18,000, but that the pre-tax portion would be capped somewhere between $6,000 and $9,000. Of course this didn’t happen, but it would not have been without precedent. The last time Tax Reform was undertaken, in 1987, there was a reduction in the limits from $30,000 to just $7,000.

It should be noted that this is just the proposed Bill. The next few weeks will likely see numerous revisions and fierce lobbying to bring back other deductions, which could impact the retirement savings piece. For now, however, it appears that Congress (and the President) has validated the qualified retirement system as the way Americans will save for retirement.

We will keep you updated as more details are released or as changes are made.